Things are about to get real interesting…

I suggested in last Thursday’s “How I see it” that equity markets would likely stall in the near term and that crude would run into resistance at between $40/bbl and $42/bbl.

“Further, the likelihood of crude moving significantly higher in the near term is remote.”

Last Tuesday, April 12th, crude WTI closed at $42.17/bbl. It has since fallen prey to several factors contributing to its reversal lower. The most obvious of which is the extent to which US production of shale oil becomes profitable at $42/bbl. Much importantly though is what happened over the weekend in Doha. The long anticipated talks that were hoped to have led to a production freeze by most major producing states failed. Not only were the hopes of a reduction in production not in the cards but even a freeze in production was ruled out as a result of the long standing regional power struggle between Saudi and Iran.

Crude’s trade lower, heading into today’s market opening, has negatively impacted currencies from the Canadian to the Australian dollar and virtually every currency that has a high level of correlation to commodities. There is some goods news, at least domestically, for crude and that is that consumption has gradually had the effect of drawing down extremely bloated reserves. Ultimately that should allow for a floor to materialize for crude as we head into the summer driving season. However, that theme is hardly going to have much of an impact in terms of being a counter weight to the failed Doha talks.

With crude’s reversal lower can earnings provide enough of a stimulus to keep investors engaged?

The other principle theme driving this week’s equity markets is earnings. It will be a busy week as we transition from financials to everything else. From Starbucks, McDonald’s and Alphabet to Microsoft, General Motors and General Electric. One of the most important factors for investors this week, besides earnings and guidance, will be the look provided by reporting companies into consumer spending. As far as earnings are concerned, again, expectations have been significantly lower across the S&P 500 board so “beats” should come in at around 65%-70%.

flickr photo: Thomas Hawk